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Get Four
|  | NOVEMBER 4, 2003
How Big of a Bell-Ringer for Retailers? While most analysts expect a merry Christmas season, a good argument can be made that it won't be so jolly after all  After two dismal Christmas shopping seasons in a row, retailers can expect better holiday sales and profits this season. But results may not be as strong as some of the more bullish forecasts suggest unless the unemployment picture starts to improve (see BW Online, 11/3/03, "Where and Why Retail Is Raking It In").
The National Retail Federation (NRF), the industry's main trade group, predicts that sales for November and December will rise a heady 5.7%. That's well above last year's 2.2% gain, based on government sales data. Using a slightly different measurement (which also includes January sales), consulting firm Deloitte Research is even more optimistic, forecasting an increase of 6.5% to 7%. "The economy stands poised to deliver one of the best holiday seasons of the past 10 years," says Deloitte chief economist Carl Steidtmann. Perhaps, but retailers face a number of head winds that could make the lofty numbers being bandied about difficult to attain, says David Wyss, chief economist at Standard & Poor's. The boost from tax rebates and tax cuts is slowing. And job security remains a big concern across the country. "It will be a good Christmas, but it won't be a great one," predicts Wyss. Likely to have the best season are the luxury stores -- whose clientele are probably least concerned about the possibility of unemployment -- and the value-oriented chains that cater to the frugal consumer. THE WORST CHRISTMAS. Certainly, results that are any improvement over last year will be welcome relief to retailers of all stripes. They count on the holiday season for a bulk of their sales and profits. Last year's 2.2% increase marked the lowest increase in the decade since the government began keeping broad monthly data on the wide spectrum of goods sold at Christmas. For sales at stores open at least a year, 2002 was the worst Christmas since 1970, according to Bank of Tokyo-Mitsubishi's chain-store sales index. Last year, same-store sales among the major chains, including discounters, department, and specialty stores, rose an average of 0.5% for November and December, the bank estimates. Bank of Tokyo economist Michael Niemera points out that the economy's fundamentals are more sound than they were a year ago, which should give sales a lift. Niemera forecasts that the bank's chain-store index of same-store sales will rise 4.5% this season -- the biggest gain since 1999, when the index rose 5.4%. FALLING CONFIDENCE. A broader swath of economic indicators -- including a surge in the stock market -- also point to recovery vs. a year ago, and consumers don't face an impending war with Iraq. But unemployment, a key economic measure, isn't spreading holiday cheer. In September, the unemployment rate held steady at 6.1%, above the 5.7% rate a year ago. Job uncertainty is the main reason the Conference Board's index of consumer confidence fell from 81.7 in August to 76.8 in September. A year ago, confidence levels were 93.7. Back-to-school sales were better than expected, which raised optimism about the holiday season. "We expect to see a follow-through for Christmas," says Steve Sadove, vice-chairman of Saks (SKS ), which operates upscale retailer Saks Fifth Avenue and several moderate-price department stores. The summer surge for the economy was driven largely by tax rebates and tax cuts, which peaked in August. S&P's Wyss notes that most consumers have already spent the rebate and don't look forward to further tax cuts this year. Indeed, after retailers reported the strongest same-store sales in September since June, the first weeks of October was softer, according to Bank of Tokyo. OVERAMBITIOUS GOALS? Expensive consumer electronics, such as flat-panel display TVs, are precisely the sort of item that debt-wary, unemployment-fearing shoppers would likely forego. While electronics retailers face potential difficulty moving big-ticket items, they're also struggling with price deflation in most categories, points out Richard Hastings, chief retail analyst at retail credit reporting firm Bernard Sands.
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